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Lines Drawn In Bailout Battle: Consensus Shifts Against White House

September 22, 2008 05:04 PM

Days after Treasury Secretary Hank Paulson rolled out a huge financial market bailout proposal to positive reviews, the battle lines across the political landscape have shifted. The prevailing sense, among tuned in observers, is that Paulson and the White House are now face a steep climb in Congress.

On Monday, several high ranking Democrats stepped up their opposition to Paulson's plan, which called for spending at least $700 billion over a period of time, with scant additional oversight added to the financial markets or, for that matter, to Paulson's actions themselves.

Barney Frank, the chair of the House Financial Services Committee, was one of the first out of the gates, telling ABC's Good Morning America: "I trust Hank Paulson. But I don't trust anybody to have the amount of power he asked for in the bill he sent us." Chris Dodd, chairman of the Senate Banking Committee, followed suit: this bill, he warned, will "turn $700 billion over virtually to one individual."

And while the rest of the caucus was initially vague about where it stood, their positions have became more sharply defined. A counter proposal was released through Dodd's office, calling for government intervention in the market, and adding elements that the Bush team initially resisted: limiting corporate compensation, assisting homeowners, inserting measures to prevent foreclosures, and demanding additional oversight of Treasury's actions. It is a pill Paulson may have to swallow.

"I think the White House and the Treasury are in a position where they have to take what Congress offers them. I don't see how they have any bargaining power," said James Galbraith, a professor of economics at the University of Texas. "If Congress crafts a bill that serves and protects the public interest while providing some measures that protect the financial market, the White House will have to take it."

One of the sticking points that could impede a possible resolution between the Dodd and Paulson plans, those familiar with the proceedings say, is the issue of executive compensation. This past weekend, word circulatied that Wall Street executives may not play ball (refusing, gently, to help unload the bad investments versus the somewhat promising ones) if Congress tried to cap the funds they earn. In essence, they would rather take their chances with failures and buyouts. And on Monday, President Bush put a voice to this position, declaring in a statement:

"We certainly understand and are sympathetic to the sentiment regarding the pay of CEOs and senior management of these firms, but we have to focus on the problem, and the problem is that we need these firms to participate in the program and sell us this debt. Having punitive measures would provide a disincentive for firms to participate, and that would make the program much less likely to succeed."

Democratic officials, in public, have said caps on executive compensation are a prerequisite to any arrangement. "Something on executive compensation should indeed be part of the package," said Sen. Chuck Schumer on MSNBC. "It is wrong to have executives who create all kinds of problems... then walk away with golden parachutes."

http://www.huffingtonpost.com/2008/09/22/lines-drawn-in-bailout-ba_n_128372.html